Category Archives: News Update

We have identified the lowest rates in our industry. Our source charges less than 1/3 of the standard rate. When I first read about this arena I was attracted by the fact that merchants could access tens of thousands of dollars by utilizing loan companies prepared to offer instant funding to credit card acceptors. However when I saw the rates that were being charged I vowed to never present this to any of my clients. However I did eventually read about one firm that seemed very honest and whose rates were less than 1/3 of the other loan companies. Than one of my merchants contacted me because he had been approached by one of the typical high usury firms. After I determined that he had exhausted all of his bank lines I agreed to put him through the firm I had found. Everything went smoothly and now I don’t hesitate to accept applications for this company if the situation warrants it. As always if you have a need contact me.

The below article addresses the pros and cons of these startup accounts.Unless merchants are small enough to store inventory under their beds, they’re going to need more than PayPal or Google has to offer. “You rarely see a merchant accepting MasterCard but not Visa,” Roy Banks, President of Authorize.Net, said. “That’s because the merchant wants to – needs to -accept the payment form their customers dictate.

“Anything else, and they’re leaving money on the table. And no matter how much PayPal or Google grows, they’re just not going to replace credit cards anytime soon.” Merchants who earn or have the potential to earn $20,000 a month are candidates for a merchant account and online gateway service.

They are likely to qualify for lower commission rates when using a merchant account than when using third-party payment services like PayPal. A quick comparison of costs may be all that’s necessary to illustrate this. Buying by price alone may not be the best strategy. Most online merchants are somewhere between bootstrapped and taking in $20,000 a month.

While price is likely to be an important factor for any merchant, it’s not likely to be the only one. After all, if a family member is seriously ill, do you select a doctor on price alone? The way a business processes payments can be critical to the health of the business, and most successful business people are too smart to leave that to chance. Remember, ISOs and MLSs offer invaluable services Google or PayPal don’t offer.

Get creative with customer service and consulting

The payments industry’s technology, rates, and regulations change at bewildering speed. There are hundreds of options for merchants. Mistakes can cost them a great deal both financially and in aggravation, particularly over the long term. It’s a full-time job to keep up with the changes. Although vital, bankcard processing is only one small part of a merchant’s business. Merchants are experts in their fields; they should be able to rely on an industry consultant’s expertise in the payments field.

A consultant’s ability to help merchants select the best of many options for a merchant’s particular circumstances is something with which PayPal or Google cannot compete: They offer what they offer and have no reason to screen other options or distill industry information for their merchants.

“Since the MLS is offering a personal service to online merchants that the other third-party providers aren’t offering, we should consider actually increasing the fees slightly,” Thompson said. “We may as well charge slightly more for our personal services to merchants, once they realize that the cheaper service isn’t always best, especially for the small/mid-sized merchant that needs a real expert opinion on which options they should choose. These new services may actually turn out to make the MLS‘ expertise more valuable, which increases our value, to say the least.”

Additionally, PayPal reportedly suffers from customer service concerns. Some are real, some are perceived. Stories abound of merchants whose accounts were frozen by PayPal when a chargeback was disputed.

The PayPalphishing scam barrage also makes some merchants uncomfortable: It’s so incessant that it appears PayPal is not taking action. People wonder, What if PayPal‘s customer accounts are locked because of unauthorized activity (which one of the scams threatens), and the only payment alternative a merchant has is PayPal? What if the PayPal system is compromised by hackers?

Real or not, these concerns expose an underlying fear: If PayPal (or something like it) is merchants’ only payment option, PayPal has more control over their payments – and therefore their income – than the merchants themselves.

Emphasize control and branding

Having their own merchant accounts gives merchants more control in resolving payment disputes, such as those involving customer chargebacks. Many merchants think PayPal tends to decide such disagreements in favor of the purchaser. A merchant account also gives merchants control over their customer data, which potentially could provide valuable marketing opportunities.

“With either Checkout or PayPal your customer is building a relationship with the payment processor, because a Checkout or PayPal account must be opened by your customer in order for you to accept their payment via either of those vehicles. Further, Google and PayPal both process the actual transactions for merchants, taking on even further ownership of the relationship … potentially profiting off float time between settling and transferring funds to merchants. And, both Checkout and PayPal actively market to these customers and may even promote your competition to your customers.”

Remer said PaySimple‘s solution can function completely on the back-end with “our customer’s own shopping cart, or we can create custom-branded secure Web pages for shopping cart payments or online bill-pay. In contrast with PayPal, the transition to a PaySimple payment screen is seamless. Purchasers don’t have to go to a separate site for payment processing.”

Banks thinks the value of a merchant account goes beyond a simple payment process. “It’s a proven business model that has evolved over time,” he said. “It’s a true merchant banking account: The merchant has a relationship and a history with the financial institution, and it is FDIC insured. Access to the funds cannot be withheld.”

A big challenge for merchants is that most online merchants are actually multichannel. They aren’t just selling online. They may have a storefront. They may process MO/TO sales, or even mobile sales. This is a huge opportunity for ISOs and MLSs.

“The ISO is in the perfect spot to not only explain the merchant’s cost of processing to them, but to help them find one solution that provides the best option for every type of transaction they use, or may want to use,” Banks said. “Who else can give them that kind of information?”

Become a solution provider

To compete with alternative payment solutions, such as PayPal or Google, that bundle shopping cart and other online benefits, processors or ISOs need to create solutions that specifically fit the needs of online merchants.

“I think that in the future ISOs will be solution providers, not just payment providers,” Banks said. “If the online merchants don’t find their needs met by ISOs, then other solution providers will start bundling merchant services. A reseller can look like a real hero to the merchant if they not only set up processing but also help them streamline or market their business better. And in the future I think those things will all be integrated.”

Silver highlighted the need for processors to offer shopping carts. “For the profitable accounts, the lack of a shopping cart is more of a problem than PayPal itself,” he said.

Dan Schatt, Senior Analyst with CelentLLC, thinks payment providers need to move beyond the tactical work of serving as a gateway or processor.

“As merchants search for any edge that can increase loyalty and lower shopping cart abandonment, they will enlist a new breed of provider that can do more to increase their profitability than what has been offered in the past,” he said.

“The most effective payments capabilities will be hard to discern from a merchant’s merchandising program and will blend into the look and feel of the merchant site.”

Schatt thinks today’s alternative payment options will not only address many industry fraud issues head-on, but they will also couple authentication and payment options with strategic marketing capabilities to become an extension of a merchant’s marketing program.

“The most innovative products will allow merchants to promote unique offerings, spurring loyalty and retention benefits that ultimately make a merchant more profitable,” he said.

Merchants need their needs and boost their profitability in ways so creative that leave the PayPals and Googles of the world stuck in the Web, ready to fold.

Article published in issue number 060801

—Bill HoidasDistrict Sales ManagerLarger B2B/MOTO/Internet AccountsMatrix Payment Systems(847) 381-3482 office(847) 381-4289 faxhttp://paymentconsulting.netJohn 3:16 For God so loved the world, that he gave his only begotten Son, that whosoever believeth in him should not perish, but have everlasting life.

Below please find an industry update on early cancellation fees that some processors try and enforce. Because of all of the reasons below merchants that have had larger potential early exit fees have been bringing the former processors to court and the processors have been losing. Because the fee is usually small the fact is that no processor is going to incur legal expenses to try to enforce a clause that’s been losing in courts. The easiest way to ensure that you don’t have to pay a fee is to wait until your new processor is in place and you have received your last ACH credit from them and than instruct your bank to stop any future withdrawals from your account by your former processor. Than experience has shown that the former processor will just go away softly into the night..

Bill HoidasDistrict Sales ManagerLarger B2B/MOTO/Internet AccountsMatrix Payment Systems(847) 381-3482 office(847) 381-4289 faxbhoidas@matrix-ps.comJohn 3:16 For God so loved the world, that he gave his only begotten Son, that whosoever believeth in him should not perish, but have everlasting life.

the legal jungle

CANCELLATION

FEES

How Much is Too Much?

by Paul Rianda

There has been considerable discussion of late regarding cancellation fees that are charged by ISOs and credit card processors upon the termination of a merchant agreement. Below I will discuss the various types of cancellation provisions and their impact on our industry.

What Is A Cancellation Provision?

The vast majority of Merchant Agreements contain a provision that provides for the merchant to pay a cancellation fee if the Merchant Agreement is terminated before the end of its term. The “term” of a Merchant Agreement is the time period the contract will be in effect. The industry standard term for Merchant Agreements is three years. A typical cancellation situation occurs as follows: A merchant signs up with a credit card processor under a Merchant Agreement that provides for a three-year term. The merchant is then approached by a sales agent that wishes to move the merchant to another credit card processor, usually using the enticement of charging the merchant less fees for processing credit cards. The merchant attempts to cancel its existing Merchant Agreement with its current credit card processor before the merchant has been with the credit card processor for three years. However, the merchant is notified when it attempts to cancel the Merchant Agreement that it is subject to a cancellation fee since the merchant has not fulfilled its obligation to use the credit card processor for the entire three years that it is obligated to do so under the Merchant Agreement.

Types of Cancellation Fees.

There are three main types of cancellation fees that are prevalent in the bankcard industry: The first type of cancellation fee is the flat fee. The merchant is charged a set amount for canceling the Merchant Agreement prior to the end of the term, regardless of when the cancellation occurs. Consequently, if the merchant cancels the Merchant Agreement one day into the relationship or even 2 years and 11 months into a 3 year term. The merchant pays the same amount as a cancellation fee. The most common cancellation fee utilized in our industry is a flat fee of $295. The second type of cancellation fee is a hybrid fee, that is calculated by multiplying a fixed amount by the balance of the term left in the Merchant Agreement. Agents and credit card processors will typically choose a cancellation fee multiplier that is the sum of the monthly minimum and statement fee payable every month by the merchant such as $35. The $35 is multiplied by the remaining months left in the merchant contract. For example, if a merchant cancels his Merchant Agreement after two years where the Merchant Agreement has a three-year term, there are 12 months left in the term of the Agreement. To determine the cancellation fee, you multiply the 12 months remaining in the Merchant Agreement by $35 to arrive at the total cancellation fee of $410. The third type of cancellation fee, and potentially the most problematic, is based on lost profit to the credit card processor. The Merchant Agreement provides that the credit card processor is entitled to the monthly profit that it would have made from the merchant for the balance of the term of the Agreement. For example, if the merchant cancelled its Merchant Agreement with a year left on the term of the Agreement, the credit card processor would be entitled to 12 times the average monthly profit it would have derived from the merchant. This includes all dues, assessments and other charges that the merchant may have incurred in the first two years of the relationship on an average monthly basis.

Problems With Cancellation Fees.

The main reason credit card processors have to charge these fees is to dissuade merchants from moving to another processor. If a merchant decides to move to a new processor that is willing to offer the merchants more competitive pricing for its credit card processing services, the credit card processor uses the cancellation fee to try to retain the merchant. The merchant loses because it cannot move to a different credit card processor without paying what may amount to a hefty fee in many circumstances. If the merchant does move, the price it pays in the cancellation fee may more than offset any advantage it will get from a lower rate to process. This practice therefore tends to limit competition in the marketplace. Cancellation fees have also caused problems for credit card processors that try to assess such fees to merchants. Inadequate disclosure of fees is a common problem. Some processors bury the cancellation fee to be charged in the boilerplate language of the agreement and some do not disclose it at all. There have been a number of lawsuits recently challenging these cancellation fees and some companies in our industry have had to pay substantial settlement payments to address these claims. While inadequate disclosure is a problem regardless of the type of fee, the most serious consequences can occur when “lost profits” cancellation fees are not fully disclosed. Obscure language in the agreement may make it very difficult to really appreciate the amount of the fee that may have to be paid in the event of cancellation. One almost has to be an expert in the credit card processing industry to understand the consequences of early termination of the relationship. If a merchant does try to cancel its contract, the credit card processor sends out a letter to the merchant alleging it is entitled to a cancellation fee that few merchants could afford to pay. The credit card processor has access to the merchant’s bank account so often it is able to take the cancellation fee straight out of the merchant’s bank account before the merchant can object. The merchant is left with the decision to stay with the credit card processor or fight over a termination fee that could bankrupt it. The continued use of these types of cancellation fees, especially the ones based upon lost profits, is inviting additional scrutiny and regulation of our industry. It might be time for us to consider adopting “best practices” to regulate the imposition of cancellation fees in Merchant Agreements.

** The information contained herein is for informational purposes only and should not be relied upon in reaching a conclusion in a particular area. The legal principles discussed herein were accurate at the time this article was authored but are subject to change. Please consult an attorney before making a decision using only the information provided in this article.

Paul A. Rianda, Esq. is an attorney who has specialized in providing legal advice to the bankcard industry for the past 10 years. For more information about this article or any other matters, please contact Mr. Rianda at (949) 261-7895 or via email at paul@riandalaw.com